Pass -Through Certificates
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Benefits of Pass-Through Certificates
Pass-Through Certificates offer various benefits to both lenders and issuers:
✓ Pass-Through Certificates help the lenders in converting the illiquid assets into cash-generating liquid assets.
✓ Securitization facilitates the transfer of funds from the less efficient debt market to the more efficient capital market.
✓ Securitization can improve the debt-equity ratio of the firm.
✓ Usually, the underlying assets of Pass-Through Certificates are tangible. In case of default/failure to pay for the loan associated with the object, the lender has the right to confiscate the item in lieu of payment.
✓ As banks or other financial institutions package these loans into a securitized investment, potential investors can consider the investment, such as a Pass-Through Certificate, more stable than other forms of investments.
How do Pass-Through Certificates work?
Here’s how Pass-Through Certificates work:
✓ The originator or bank assembles a set of loans into a single securitized loan package for distribution to investors.
✓ Following the securitization process, the receivables are turned into debt instruments.
✓ When the debt instruments are ready to be distributed to investors, the originator will designate a Special Purpose Vehicle (SPV).
✓ Debt instruments, often known as Pass-Through Certificates, are issued to investors by a Special Purpose Vehicle (SPV).
✓ The originator obtains money from the borrower, either in the form of interest or in another type of compensation.
✓ The money received by the originator is passed on to the Special Purpose Vehicle (SPV).
✓ The money is subsequently distributed to the investor by the Special Purpose Vehicle in the form of fixed income payments.
Parties involved in the Pass-Through Certificate transaction:
✓ The Originator: The originator is the creator of the transaction. In simple words, the originator puts the structures necessary to complete the transaction in place. Originator sells the assets that are on its books and receives the proceeds from the sale of those assets.
✓ The Special Purpose Vehicle: The Special Purpose Vehicle is responsible for distributing the Pass-Through Certificates to the investors. As a low-capitalized entity with narrowly defined purposes and activities, the SPV is typically governed by independent trustees/directors who act in their own best interests.
✓ The Investor: The investors may be individuals or institutional investors, like Mutual Funds, Insurance Companies, Pension Funds, and other financial institutions. They purchase the certificates from the total pool of receivables and receive payment in the form of interest according to the pattern agreed upon between the parties.
Why is Pass-Through Certificate for you?
Pass-Through certificates help both originators and investors:
Originators/Banks: Originators or banks issue Pass-Through Certificates to safeguard themselves against risk by transferring their receivables to the government or other financial institutions that buy such debt securities. The originators can write off these assets from their books to issue more loans to the borrowers and ensure better liquidity in their businesses.
Investors: Investors can generate a consistent fixed income stream by investing in Pass-Through Certificates.
Wondering where you can start off your investment journey with Pass-Through Certificates in India?
CredPool, a product of CredAvenue, helps both investors and originators. Here’s how:
A price discovery vs. loan product model with compliance modules for pre and post-settlement requirements is provided by CredPool, which is simple to implement.
You will discover better pricing as well as a more straightforward transaction process, which will improve your overall experience. CredPool offers the following features:
- ✓ Deepening supply & demand on Platform
- ✓ Data Privacy & Pricing
- ✓ Digital KYC | LMS Integration
- ✓ Compliance & Reporting requirements from Banks
A comprehensive asset quality check and data integrity check are performed by CredPool, which reduces the burden on the investors’ time and resources.
CredPool has discovered and executed over Rs. 17,500 crore in Direct Assignment and Pass-Through Certificates volume on their platform, all through automated processes and strict adherence to regulatory compliance.
What are Asset Backed Pass-Through Certificates?
Secured by Assets, Pass-Through Certificates are certificates with tangible assets as their underlying assets, such as home loans, auto loans, commercial loans, or any other type of asset-backed loan.
What are Mortgage Backed Pass-Through Certificates?
Secured by a Mortgage, Mortgage Pass-Through Certificates are certificates with mortgages as their underlying assets, such as a home mortgage, a commercial space mortgage, or any other type of mortgage loan.
How do I invest in Pass-Through Certificates in India?
You can invest in Pass-Through Certificates in India via CredAvenue. As the Securitization & Direct Assignment life cycle progresses, CredAvenue’s comprehensive product capabilities meet a wide range of customer needs.
CredAvenue, with over 17,500 crores of volume discovered and executed in Direct Assignment, and Pass-Through Certificates, brings unparalleled efficiencies and a data-driven approach to the Asset Based Securitization deal-making process to the industry.